Apple: BMO Reassured China Mobile Will Add 15M iPhone Units in ’14

By Tiernan Ray

BMO Capital Markets‘s Keith Bachman this evening reiterated an Outperform rating on shares of Apple (AAPL), and a $585 price target, writing that following the official retail kickoff of sales of the iPhone at China Mobile (CHL) yesterday/today, he still thinks the world’s largest carrier can add 15 million units to Apple’s total sales this calendar year.

The anecdotal comments about pre-orders by China Mobile on Wednesday are positive, he thinks, though most of the units will probably not be in Apple’s income statement until this quarter, rather than last quarter:

Preorders at China Mobile started on December 25, 2013, and China Mobile indicated that preorders exceeded 1 million units. For past launches, we note that preorders for the iPhone 5 were more than 2 million, iPhone 4s were 1 million, and 600,000 for the iPhone 4. Apple did not disclose preorders for the iPhone 5s. In any event, we think that the preorders at China Mobile are relatively positive [...] In past launches, most of the iPhone sales were fulfilled by Apple directly, including online, instead of by retail partners. However, it appears that iPhone sales are being fulfilled by China Mobile’s 3,000 retail outlets, at least initially. iPhones sold directly by Apple are recognized on a ship-in basis, or only upon customer receipt of the product, while iPhones sold to retail partners are recognized on a ship-out basis. Therefore, we believe that some amount of iPhone sales to China Mobile will be captured in the December quarter, but most in the March quarter.

The sheer scale of China Mobile’s hundreds of millions of users presents a lot of opportunity for Apple, he thinks:

We believe China Mobile remains a big opportunity. China Mobile has about 181 million 3G subscribers (as of November 2013) and has added about 93 million 3G subscribers from the beginning of CY13. In our recent meeting with China Mobile, management commented that as many as 50 million iPhones were currently on China Mobile’s network, which remains a huge opportunity for potential upgrades.

Bachman thinks that price cuts by China Mobile’s two competitors, China Telecom (CHA) and China Unicom, could also spur sales. And he dismisses some media reports that claimedthere was subdued reaction in China to the retail debut:

Media reports have indicated muted interest in the iPhone launch at China Mobile. However, as we indicated above, iPhone availability is currently at China Mobile outlets, not at a very limited number of Apple retail stores. Also, reservations were required to pick up the iPhone. So by suggesting that no lines mean weak demand, we think does not capture the different product rollout strategies.

Apple shares today closed down $13.58, or 2.5%, at $540.67.

Correction: A prior version of this posted listed 2015 in the headline, when in fact Bachman refers in his report to the effect of China Mobile sales this year. My apologies for any confusion caused by the error.

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There are 26 comments

JANUARY 17, 2014 5:55 P.M.

Dan wrote:

Better than Wedge Partners or the NY Times with their fairy tales!

JANUARY 17, 2014 6:00 P.M.

Mike wrote:

Wow, a reporter for the New York TImes writes an article from Japan saying demand was tepid and the stock tanks...amazing! Maybe to someone in Omaha Japan is closer to China than them, but that person still had to rely on photos he saw...and its obvious they don't understand that there were 3,000 outlets to get iphones and you had to had a reservation to get one at an Apple Store. Wierd sloppy journalism and people that will sell on anything said by anybody.

JANUARY 17, 2014 6:05 P.M.

Ed wrote:

Another A-Hole with an opinion. Who F cares Keith. The stock was down 14 today on all this fabulous news. Simply Pathetic. Apple could crush earnings and the stock will be sold off. Any reason will do. Cook may have a red shirt on instead of blue creating margin concerns moving forward. Maybe some A Hole will do a channel check and find his remote controller doesn't work causing revenue concerns. Perhaps Tim Cook gave out too many Gold IPhones to China Mobile and their customers, leading towards expense issues. Doesn't matter. Apple will get sold off and played by the Hedge Funds regardless of the reasons. We should hear quite a few.

JANUARY 17, 2014 6:31 P.M.

Ed wrote:

Let's review: Apple and Google were both at 600 when Cook took over. Now let's review where both are now: Apple down 60 to 540 and Google up 550 to 1150. It sux to be an Apple Shareholder.

JANUARY 17, 2014 6:38 P.M.

Sam wrote:

Tim Cook needs your help. He is still looking for his head, which was last seen up his as- in China. Let Tim know if you find it.

JANUARY 17, 2014 6:55 P.M.

CKW wrote:

For those pathetic folks felt so pathetic owning ( i presumed) APPL shares.....why don't they just sell them off once & for all......PROBLEM SOLVED! instead of whining over & over again..........blaming on this & that over some price movement......whoever wana overnight windfall.....try jackpot instead...

JANUARY 17, 2014 7:49 P.M.

Peter Gittlin wrote:

Apple's problem is perception - the market sees Google and Amazon constantly buying or inventing businesses that will add revenue growth in multiple categories. Earnings are not as important as investors can see growth and smart and aggressive business moves. All investors see with Apple is Tim Cook saying over and over again that Apple only will make the best products and not the most products. It's as if he is a cult leader and this is the way Apple should operate. The problem is that everyone else is also making great products in the same categories that Apple is playing in - Phones, Tablets and Computers. There is no moat around their business like Google or Amazon has and thus Apple risks continual commoditization of their business and lower ASP's. If Cook can get his head out of the sand and realize the market and Apple need to move a lot quicker in other growing categories then maybe the market will reward them with a normal p/e.

JANUARY 17, 2014 8:37 P.M.

Ed wrote:

Peter is dead on. Cook and his Apple island is not good enough. Making the best products is not good enough. Apple sitting on cash and letting it burn is not good enough. In fact, it sux. Apple needs to do a $50B Buyback and Apple needs to buy a company for it's business growth. Here are a few: Twitter, Yahoo, Bidu, Priceline, Expedia, or Netflix. Simple, easy, and stock will Soar. That's the game plan but with Cook as CEO he doesn't get it. Apple needs a new CEO to make this happen.

JANUARY 17, 2014 8:51 P.M.

Ed wrote:

I used to own Apple stock. During that time, I thought this is the largest cap with products loved by everyone and it can go no wrong. It should be a steady grower and you can be assured at least that it will consistently deliver to its shareholders fairly good return as you sleep. However, what I experienced was a roller coaster ride. Every single days, it's the talk of media. Some talked it up as if the stock will go nowhere but up through the roof. Others thumbed it down to claim it's a replay of Microsoft and all you get is the dividends. The noise was so annoying to a point that I simply could take it any more. There must be a better way to own a stock.

JANUARY 17, 2014 9:35 P.M.

John B wrote:

Who gives a R.A. about the news comments...the ONLY thing that matters is earnings. The p/e is not something Cook can influence or control but he can influence earnings and has done so in a positive and consistent manner. For crying out loud, relax and let the cash flow continue...at some point this will be reflected in the price of the shares. I find it very easy to own and appreciate the extraordinary commitment to high quality products. Most of the nay-sayers have probably never owned an Apple product.

JANUARY 17, 2014 9:43 P.M.

Brian wrote:

AAPL was only down today because of options expiration. Everyone who bought LEAPS when the stock was at 600-700 officially lost their money today. Now I predict a stock reset and AAPL can finally start climbing again. Sentiment has shifted but the big money had to make sure all the options expired worthless before they could start driving it back up. I bought more at the close and I expect a big up day on Tuesday. We shall see.

JANUARY 18, 2014 1:53 A.M.

RANDY SCOTT wrote:

AAPL IPHONE SALES ARE STRONG ALL OVER THE WORLD. THE SELL-OFF TODAY IN AAPL SHARES IS A GREAT BUYING OPPORTUNITY , AND WAS DUE TO STUPID JOURNALIST REPORTS FROM STIPID APPLE HATERS. THIS SAME CRAP APPEARED WHEN AAPL RELEASED THE IPHONE 4S AND THE IPHONE 5 IN CHINA. LISTEN UP PUNK REPORTERS....EVER SINCE THE RIOTS BROKE OUT IN CHINA OVER EVERYONE WANTING AN IPHONE AND DEMAND WAS SO STRONG THAT RIOTS BROKE OUT AND AAPL HALTED SALES, FROM THAT POINT LAST YEAR, AAPL NOW TAKES PRE-ORDERS FROM ALL CHINA TELECOMS AND MAILS THE CUSTOMER THEIR PHONE.THEY GET IT IN LESS THAN A WEEK, SO REMEMBER THIS IDIOTT , WHEN YOU SEE LINES FOR IPHONE 6 AND THERE ARE ONLY 1000 PEOPLE, ITS BECAUSE 2 MILLION PEOPLE HAVE DECIDED TO STAY AT HOME ON THEIR NEW MAC COMPUTERS AND ORDER ANOTHER GREAT AAPL PRODUCT WHICH YOU (HATER) OBVIOUSLY CAN'T AFFORD ! THAT'S WHY YOU TRASH AAPL WITH YOUR INFERIOR REPORTING WHICH JUST SHOWS HOW STUPID AND UNINFORMED YOU REALLY ARE. BY THE WAY, YOU CLOWNS SAID THE SAME THING LAST TIME AAPL RELEASED A NEW PHONE AND THEY REPORTED SALES OF 33.8 MILLION IN JUST 3 MONTHS. THIS MONTH IM LOOKING FOR 57 MILLION IPHONES SOLD, PLUS 35% SALES INCREASE IN IMAC'S, PLUS 75% INCREASE IN IPADS, AND TAHDAH...72 BILLION IN SALES,ANOTHER AAPL RECORD QUARTER AND AAPL STOCK JUMPS $100.00 A SHARE OR MORE; WHICH IT OBVIOUSLY DESERVES ON ITS WAY TO $800.00 . THIS STOCK IS A STEAL HERE AND BUY IT UP ON MONDAY CAUSE ITS GOING A LOT HIGHER.

JANUARY 18, 2014 2:44 A.M.

Rottan Frewt wrote:

Good luck for the $585 price target on Apple. It will more likely be $485 right after earnings. Another great buying opportunity, I suppose. There's not a great buying opportunity for Google at $1150 a share but investors are still shoveling cash into the company because now they have smart thermostats. Woop-ti-doo! Apple is really messing up horribly. How the hell can Hewlett Packard be outperforming Apple?

Tim Cook has taken Steve Jobs wonderful company and turned it into Wall Street's biatch. Everything Tim Cook does quickly backfires on shareholders. Investing in Apple is a lose-lose situation. It doesn't take a genius to realize that Apple needs to spread its wings into markets other than smartphones where Android has close to 90% market share. Apple is sitting on a huge mountain of cash and yet Tim Cook can't figure out how to spend to actually create some future growth. At least enough to get investors interested or excited to put some money into Apple instead of Google or Amazon. I'll bet Steve Jobs is spinning in his grave after seeing Tim Cook dancing in the streets of China while the stock is beaten into crap. Apple stock is absolutely pathetic. Wake up, Cook. The bitten Apple logo is turning into a road-apple. Today is the pre-sell-off before the Q1 earnings sell-off.

JANUARY 18, 2014 8:51 A.M.

Guy little wrote:

U totally bought more stock after the Times article! Keep it up guys! I will be very wealthy when the truth comes out! I mean you guys saying that the lines weren't out the door without mentioning the people needed to pre-order them for pick up is just nuts!
Also, if you guys are reporters then why don't you analyze and find the information that is necesssary to understand reality? The China Mobile guy said a few million, for example! Did he say that or did he not say that???

JANUARY 18, 2014 8:57 A.M.

Guy little wrote:

I totally bought more stock after the Times article! Keep it up guys! I will be very wealthy when the truth comes out! I mean you guys saying that the lines weren't out the door without mentioning the people needed to pre-order them for pick up is just nuts!
Also, if you guys are reporters then why don't you analyze and find the information that is necesssary to understand reality? The China Mobile guy said a few million, for example! Did he say that or did he not say that???

JANUARY 18, 2014 9:00 A.M.

donzoab wrote:

Its a shame to see so many post such nonsense on so many sites. Apple is doing just fine thank you. The media is just feeding this pathetic public what they want, analyst hype and hyperbole. Google's price is a reflection of wall streets love affair with growth regardless of profits. Apple continues to maintain a razor focus on product quality, customer service, user experience and security. Customers lOVE them and are very loyal. New products will emerge. Revenue will continue to pile up as will that cash. They do have an enormous $65bl stock buyback ongoing, they don't yet need another.

Stop believing your own hype, stop being negative and start living and enjoying what apple provides. The stock will eventually blow through $850 and they pay a nice dividend along the way. Tim Cook is doing a good job.

JANUARY 18, 2014 9:04 A.M.

Will wrote:

Google should make a take over bid for Apple and all will be fixed

JANUARY 18, 2014 9:51 A.M.

Market Mayhem wrote:

It's hard to imagine how Google's Nest thermostat is going to bring in more revenue than the iPhone on China Mobile, but that's what Wall Street thinks. Google's share price goes up hugely on the Nest Labs acquisition but Apple's share price tanks on China Mobile's contract where China Mobile has already ordered about 1.5 million iPhones to start. I honestly don't understand Wall Street's way of thinking. Investors must have some sort of love affair with Google thinking that autonomous vehicles, Google Glass and smart thermostats are going to bring massive revenue to Google. BS.

Why the hell doesn't Tim Cook start showing some futuristic Apple products that are going to change the world if that's all it takes to sucker investors? Apple's stock is totally messed up thanks to Tim Cook not going after Google's search engine business. Google has no worries while it lets Android run rampant over Apple's hardware business. Apple needs to get revenge on Google but Tim Cook is clueless. Dammit! I really disappointed how freaking weak Apple's management is despite sitting on a mountain of cash they could use to kick the crap out of Google.

Fact is Tim Cook playing Robin Hood over in China, has totally failed to defend the stock price and shareholders against the BS attacks by the media and the blatant manipulation of Apple stock. Get real, Apple drops 15 points on the biggest launch in company history and nobody seems to think it was preventable? Of course it was the weekly game played by the Hedgies. Cook should have known it was coming and Clobbered the Hedgies with his own war. Every Friday it happens, so Cook knew it was coming. What did he do? Nothing. As usual Nothing. He is a big Pussy and turned his back on Shareholders. Elon Musk would have ensured his stock was defended if they pulled the same BS with his company. Bottom line, Tim Cook is a Boyscout acting as CEO. He is weak, he is predictable and he could care less about Shareholders. Times have changed with all the daily spins and manipulation that occurs and self serving hedge funs are cleaning up at shareholders expense. Shareholders need protection and that has to come from the company Leadership Team. Cook either has to change or Apple has to replace him. Nobody cares anymore about the same Tim Cook rehearsed speech about Apple only makes great products. It's time Apple and Tim Cook expand their focus to include protect shareholder value and stock price attacks. Tim, lead or resign. Your choice

JANUARY 18, 2014 10:52 A.M.

Ron wrote:

What Apple and Tim Cook should and need to do Tuesday morning is " Attack and Destroy Wall Street by Pre announcing Great earnings, a major Buyback, major Dividend increase, a stock split, and great guidance. Shock and Awe is needed like Steve Jobs would do. Stock will soar. Why? Apple should launch their major Buyback as soon as they announce earnings! Shock and Awe. That's what Amazon and Google do right after their earnings, they drive up the stock with their Buyback funds. That's why there are no games being played by the Hedgies. Apple, Shock and Awe, supported by $50B in bullets and watch this stock hit 650. That's what Cook should do. Will he? F NO. HE is a Boyscout. Apple needs a 5 Star General.

JANUARY 18, 2014 11:23 A.M.

Steve wrote:

I am not a fan of Tim Cook, however no one seems to remember he became CEO on Aug 24, 2011 when the stock closed at 376. Even it's intraday low last year of 385 was higher than the day he started. In other words, if you bought stock on the day Tim Cook started you would have made a lot of money. Less now than if you had sold in Sept. 2012, but a better return than any index of the market. Today that's over a 40% gain. I suspect most loud mouths have short and/or incorrect memories.

JANUARY 18, 2014 2:25 P.M.

One of the Apple boys wrote:

Hey kids, without revealing too many details, we're on track for a stellar quarterly report on January 27. Just don't tell anyone that you read that here.

JANUARY 18, 2014 2:46 P.M.

Apple Boy Wonder II wrote:

They'll announce earnings, and that's it. They never spill over. IOW: Don't expect much else to be said news wise on earnings. After that. It'll shoot up this time on results. Why. Call it a hunch. They're rich and successful. If you have a problem with that and you're undervaluing the company and it's stock then you're unnecessarily complicating a great thing. Great things go up. That's all there is to it. If there's little risk that'll actually drive it down because a rebound's expected. However people still crave growth stock strides for their favorite tech stocks.

JANUARY 18, 2014 4:40 P.M.

Fred Stein wrote:

Great news. I'm sure that the big interest in the next quarterly report will the guidance - more important than the stellar actual results that will be reported.

JANUARY 19, 2014 2:47 P.M.

Dan wrote:

Apple was not $600 when cook took over.. people (ed) make facts up to make their point.

NEW YORK (CNNMoney) -- Apple shares tumbled in after-hours trading Wednesday, following news that the company's founder and CEO Steve Jobs had resigned.
Shares fell roughly 5% to $357. Apple was among the most active shares on the Nasdaq market site, with volume of more than 1 million shares traded after hours.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.